DOE rules banning sale of non-condensing water heaters, furnaces, can stand, court says

Dive Brief:

• Rules by the U.S. Department of Energy that would effectively prevent the sale of non-condensing gas commercial water heaters and consumer furnaces in the United States in favor of more efficient condensing appliances can move forward, a federal appellate court ruled on Tuesday in a 2-1 split decision.
• The DOE rules on commercial water heaters and consumer furnaces, proposed more than a decade ago and finalized in 2023 and 2024, respectively, mandate a 95% efficiency standard for gas-fired commercial water heaters and consumer furnaces. The agency estimates the standards will save consumers almost $25 billion on energy bills over 30 years.
• Groups representing the gas industry vowed to push back. “America’s natural gas industry will continue to fight to protect American consumers’ right to choose their appliances and energy sources,” Karen Harbert, president and CEO of the American Gas Association, said in a statement.

Dive Insight:

The Energy Policy and Conservation Act, enacted in 1975, at the height of the U.S. energy crisis, mandates that the Energy Department set appliance efficiency standards . DOE last updated furnace efficiency standards in 2007 and residential water heater efficiency standards in 2010.

Traditional non-condensing water heaters and furnaces can reach efficiency rates of about 80%, according to DOE. The roughly 20% loss of efficiency comes mainly from excess heat getting vented through an unpowered heat exchanger, typically a vertical chimney. Condensing appliances are typically 90%-95% efficient. Most of the greater efficiency comes from their conversion of excess heat to vapor that’s used for additional heating. The remaining cool air, with the help of a fan, passes through a horizontal vent; the remaining water passes through a drain.

The American Gas Association and other industry groups raised concerns years ago that, among other things, the rule could violate a provision in the EPCA prohibiting it from issuing efficiency standards that would result in the loss of a covered product type or a class of performance characteristics. Because condensing water heaters and furnaces can’t use an unpowered heat exchanger like a vertical chimney to release excess heat, the groups argued, the agency is effectively eliminating a class of performance characteristics from the market. The groups sued in late 2023, after DOE moved forward with the rules over their objections.

In its decision, the appellate court agreed with DOE that the way excess heat vents is not a performance characteristic of an appliance because “venting is a quality that both condensing and non-condensing appliances share.… At a certain level, it is obvious that consumers do not buy small furnaces or commercial water heaters because of how the appliance vents,” the court ruled in the majority opinion.

Businesses or consumers replacing a non-condensing gas-fired appliance with a condensing one — the only type the rules now allow — face hundreds of dollars in costs, critics say, to either modify the existing heat exchanger to accommodate horizontal venting and drainage or otherwise add new horizontal venting and drainage.

“The ruling, if left unchanged, will … force expensive … building renovations to accommodate appliances with vastly different venting and drainage systems,” AGA says.

Because of these costs, AGA and other industry groups say, the rules also run afoul of an EPCA provision requiring DOE to take economic considerations into mind when writing its efficiency rules.

“The Department of Energy utilized flawed assumptions in its economic analysis,” Stephen Kaminski,  president and CEO of the National Propane Gas Association, said in a statement.

In a dissent, Judge Neomi Rao of the D.C. circuit called the majority opinion wrong in concluding that venting isn’t a performance characteristic of water heaters and furnaces. “The ability to vent through a traditional chimney is exactly the kind of real-world feature Congress protected from elimination in the marketplace,” Rao said.

Rao said the majority is also wrong on the economic question because of what it costs to switch appliance types. “When replacing a non-condensing furnace, it costs significantly more to install a condensing furnace ($1,345 versus $801),” she wrote. “Given these stark cost differences, the Department must provide a ‘cogent and reasoned’ explanation for its assumption that ‘a purchaser’s decisions will not align with its economic interests in purchasing’ an appliance. But the Department provided no such explanation here.”

Gas industry groups, if they move forward with a new challenge, will need to file a petition for a rehearing en banc to the same court or a petition for a writ of certiorari to the U.S. Supreme Court. En banc refers to a panel of judges rather than a single judge.

Petitions for a rehearing en banc tend to be rarely granted because petitioners can’t seek to reargue issues that have already been decided; they must present new arguments. On writs of certiorari, the Supreme Court tends to limit its cases to those it views as having national significance, those that would be valuable because they set a legal precedent, or those that settle the difference between lower courts when they’re split on an issue.

“Ensuring new furnaces are more efficient may disappoint some gas utilities, but it’s a triumph for consumers,” Andrew deLaski, executive director of the Appliance Standards Awareness Project, said in a statement.

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